You no doubt have heard about something being “the straw that broke the camel’s back.” The point is that many small pieces add up to the point where the cumulative effect is dramatic. That one additional “straw” carries all the blame for the collapse, but it really was the thousands of others before it that does the camel in.
Recently my firm was reviewing a trucking company’s financial statements. The carrier had 40 trucks and a $75,000 loss for the year. They scoffed when I told them that the $75,000 truly consisted of pennies, nickels and dimes. How in the world could a penny here and a nickel there make a difference?
But it is true. And if a company owner doesn’t believe that a penny or a nickel makes a difference, how hard would you expect a dispatcher or manager to work to get a few cents? Every hour of every working day, your employees make decisions that affect the amount of revenue you get on each load. No longer can you just keep trucks loaded and be sure to make a profit.
Getting your managers to fight for the few additional cents per mile and total dollars on each load – or finding that one additional backhaul per week – can and does make all the difference in the world.
Overall, this particular company did $3.8 million in revenue, which is an average of $95,000 per truck. At an average of 85,000 loaded miles per year, revenue was about $1.12 per mile loaded. For this owner-operator company, how much more per mile is needed to make up the $75,000 loss? The answer is 7 cents – one nickel and two pennies.
If this doesn’t sound right to you, let’s prove it. This trucking company pays 70 percent of its revenue to owner-operators, so it keeps 30 percent. To make up $75,000, therefore, the company will need $250,000 more in revenue. Dividing this by 40 trucks, each truck must average $6,260 more per year in revenue above the $95,000. Divide $101,250 by 85,000 miles loaded, and you get about $1.19.
Perhaps it’s easier to apply this to the real world if you look at the numbers per load rather than per mile. The company’s average length of haul is 400 miles. Each truck, therefore, averaged about 213 loads per year. At $95,000 a year, each truck averaged about $446 per trip. By averaging $31 more a load, the carrier would have made up the 7 percent.
Can you get 10 or 20 cents more per mile or $40 or $50 more per load? Perhaps not, but you certainly can ask for it. All customers can say is no, and if you are lucky, they might compromise and give you a little.
Recognize, however, that your key managers must understand the importance of a few cents per mile or a few dollars per load. They are the ones who make the daily decisions that bring in the pennies, nickels and dimes. Set a revenue target for each load and manage your people accordingly. The more miles or loads you run without the additional revenue, the harder it is to make up the difference down the road.
Kenneth dewitt is a CPA and certified financial planner who serves as a part-time chief financial officer for a variety of businesses, including trucking companies. E-mail [email protected].
